Blockchain and cryptocurrency have been a trending and controversial topics in the Muslim community. However, the Islamic economy and Muslim lifestyle are impacted, nonetheless, by the opportunities and challenges of this new technology.
On this Halal in Travel Global Summit 2022 session, CrescentRating invited esteemed panelists with experiences in the industry to discuss the topic of The Role of Blockchain & Crypto in the Muslim Lifestyle Space. This session is moderated by Umar Munshi, Founder & Group MD of Ethis.co.
Joining on this session as panelists are Naquib Mohammed (CEO & Founder of MRHB DeFI Network), Mufti Faraz Adam (CEO of Amanah Advisors), and Dr. Nida Khan (CEO of Nash fintechX).
Naquib started by addressing that blockchain technology is transforming various industries, including the travel and lifestyle sectors. The use of blockchain can solve the challenges travelers face, such as untrustworthy reviews and middlemen fees.
One significant pain point in the travel industry is the inability to trust reviews on platforms like TripAdvisor and Yelp. Blockchain-based solutions can offer an alternative by providing immutability to the reviews, which are stored forever. Additionally, incentivizing people who post reviews through loyalty programs converted to tokenization can create a holistic database that travelers can trust.
Blockchain can also benefit the travel industry by reducing middlemen fees. Blockchain technology also has significant potential in lifestyle sectors like halal food and media.
Mufti Faraz added that blockchain-based platforms provide consumers comfort, confidence, and assurance by enabling food traceability and halal certification. Moreover, decentralized platforms allow people to create content for halal media, upload their content, and reach a wider audience without being forced to comply with a particular brand organization.
Dr. Nida stated that the use of blockchain technology in identification is another area that can be explored, with the potential for storing tamper-proof IDs and documentation that can be used across the globe. However, blockchain technology's adoption in these sectors faces some challenges that must be addressed.
"... in the earlier days, we could say that the technology was not robust enough," argued Dr. Nida.
Dr. Nida gave Ethereum as an example as it is still transitioning to a proof-of-stake consensus mechanism from proof-of-work, resulting in low throughput and high transaction fees. However, new blockchain platforms, such as Solana, have a high throughput and scalability. Upon recording numerous transactions on the database, storage capacity must be high, and network outages can occur, as seen in Solana.
Another challenge is user adoption. People are not accustomed to managing blockchain-based wallets or understanding the significance of having access to a private key. Moreover, the development side of blockchain technology lacks the necessary number of skilled developers to achieve market adoption. The initial capital investment in blockchain development is high, and the people who are in the space, such as entrepreneurs and financial professionals, may not be tech-savvy, leading to a big mismatch in the platform and a lack of user adoption.
Mufti Faraz pointed out that companies and organizations are still unaware of the potential risks that may arise when adopting blockchain technology. They need to research post-factor risks that may arise and may affect their entire operations, leading to question marks about adopting new technology.
Lastly, awareness and lack of knowledge about blockchain technology are other significant challenges. People in different firms are unaware of what it means to be on the blockchain, leading to a lack of trust in the technology. However, blockchain is not for everyone and legacy-based systems are working fine for many institutions. Blockchain is necessary when multiple parties are involved, and a trustless system is required.
The debate around crypto assets has multiple views, but it's crucial to refer to local scholars and trusted sources for knowledge in this space. Unfortunately, there is a lot of junk out there in the market, including toxic and rubbish assets that have no utility or value. Like in stocks, fundamental and technical analysis is necessary to understand what problem these assets are solving.
Real use cases and benefits are what will last, adding value to people's lives. This is where Sharia comes in, as it's all about utility and benefit.
"Whatever has utility in crypto that will survive and that's good to invest in potentially there'll be some return (for you) in multiple ways and whatever has no utility whatsoever then that's just hype," Mufti Faraz argued.
As the crypto market grows and evolves, Naquib advised that it is important to understand the decentralized nature of this ecosystem. Investing in crypto requires an understanding of the market and due diligence. The crypto ecosystem is still experimental, and it will take time to see mass adoption and real-world use cases. There is a severe shortage of skills in the industry, which is still new to everyone, including scholars, researchers, and technologists.
"Since the market cap is low, it's easier for wealthy people to sway markets," added Naquib.
Therefore, it is essential to diversify your investments and only invest in genuine projects and teams that will survive this experiment.
Dr. Nida explained from a technical perspective that there are three kinds of crypto tokens: utility tokens, currency tokens, and security tokens. The treatment of these tokens under sharia law would differ, and so would the perception of investing in them.
Mufti Faraz stated that "Volatility itself does not make something impermissible."
Investing in volatile markets can be a tricky business, especially when it comes to Sharia-compliant products. It can be a challenge to determine what is halal or haram when it comes to investing. According to statistics, around 90% of startups fail within the first two to three years, making it a high-risk investment. However, that does not mean investing in businesses is not Sharia-compliant.
Volatility and uncertainty are often used interchangeably, but they are not the same. Uncertainty refers to contractual contingencies and uncertainties such as delivery dates or payment schedules. Volatility, on the other hand, can come from market dynamics and manipulation but is not inherently problematic. Investing in Sharia-compliant products with volatility can still be done as long as it does not impact one's obligations in real life.
When it comes to investing, it is crucial to have a full strategy that includes evaluating the problem the startup is trying to solve, the team's expertise, and the quality of the white paper. A sound white paper that can be evaluated by a consultant in that field can tell a lot about the people behind the initiative.
"Never put all your eggs into one basket," added Nida.
Dr. Nida stated that blockchain-based applications adoption in the Muslim market is set to deliver real value in the next two to three years. This will lead to exponential growth in the adoption of blockchain technology. NFTs, which have been created on the fly and sold at high prices with no real value backing them, will be replaced with applications that deliver real value. The underlying blockchain technology can be utilized to ensure seamless travel experiences, from baggage tracking to passport and travel insurance claims.
"There is a need for aggregators in this platform that can aggregate a lot of different provided services," Naquib added.
However, there is still not much adoption and awareness within the community, leading to the repeated comment that "crypto is not seen." More education and awareness are needed to increase adoption within the community. With more awareness, the future of crypto adoption in the Muslim market looks promising.